Scandal Puts Spotlight on Pilot Flying J's Debt

Truckstop company's "business and financial positions are very strong," it says

Greg Lindenberg, Editor, CSP

KNOXVILLE, Tenn. -- Pilot Flying J Inc.'s debt nearly doubled to $4 billion in a two-year period through last year, as its owners paid themselves two payments totaling $1.7 billion from it, said a recent Wall Street Journal report citing Moody's.

The Knoxville, Tenn.-based truckstop company has been the subject of intense scrutiny since April 15, when agents of the FBI and the IRS raided its headquarters, and seized documents, emails and computer files. Authorities have accused Pilot Flying J sales staff a scheme to defraud trucking-company customers that buy diesel at its more than 650 truckstops by shorting rebate money Pilot owed them.

Several employees have pleaded guilty to conspiracy to commit mail fraud.

Last year, Pilot issued $1.1 billion of the debt--largely to fund the second one, a dividend for $700 million, according to the report, citing S&P. That was partly so CEO Jimmy Haslam could buy the Cleveland Browns football team.

"Pilot Flying J's business and financial positions are very strong," Pilot Flying J spokesperson Tom Ingram told CSP Daily News when asked for its reaction to the report. "As I stated in the Wall Street Journal article, there are inaccuracies in the rating agencies' numbers, but as a private company, Pilot Flying J is not going to elaborate."

So far, a dozen trucking companies have sued Pilot Flying J.

And last week, the Haslam family sold their shares in the Tennessee Smokies, a minor league baseball team and Class AA affiliate of the Chicago Cubs, said The Plain Dealer.

At the news conference to announce the transaction, new Smokies owner Randy Boyd, founder and CEO of Knoxville-based Radio Systems Corp., said Haslam called him in January about possibly buying the Southern League franchise. Boyd agreed to the idea, and it took several months to finalize the sale. That was four months before the FBI raided Pilot Flying J.  

The sale of the Smokies brought in some cash, although no purchase price was made public.

The Haslam group bought the Smokies for a reported $7.5 million in 2002. Most Southern League franchises are now priced in the $12 million range, the Plain Dealer said.

Haslam purchased the Browns for about $1 billion from Randy Lerner. The sale was announced Aug. 2, finalized on Oct. 16. Lerner received $700 million up front, the remaining $300 million to be paid on Oct. 16, 2016.

The Journal reported, "If necessary, Mr. Haslam says, Pilot could pay down the debt quickly."

But according to a report by NBC Sports, as a result of the raid and debt, Haslam's ongoing ownership of the Browns could be jeopardized on two separate fronts--legal and financial. Even if he is never personally charged with wrongdoing, the aftermath of the scandal could sufficiently affect the company's business to force the kind of influx of cash that would come only from selling off the one very major asset that Pilot Flying J reportedly acquired at least in part with the money it issued last year, the report said.

Pilot Flying J is the largest operator of travel centers and travel plazas in North America. Its network provides customers with access to more than 60,000 parking spaces for trucks, more than 4,400 showers and more than 4,000 diesel lanes. Pilot Logistics Services is one of the largest independent energy logistics companies in North America, selling and distributing more than 1.3 billion gallons of refined petroleum products and serving more than 15,000 customers. Together, Pilot Flying J and Pilot Logistics Services generate sales of approximately nine billion gallons of petroleum annually.